Will substitutes are various vehicles which allow the transfer of the decedent's property to others without the use of a will, thereby avoiding probate. Such vehicles include: Inter vivos gifts, joint tenancy, living trusts, Insurance and pay-on-death designations.
Inter Vivos Gifts
Inter Vivos gifts are gifts that are made during your lifetime. By making non-taxable gifts to your heirs, consult the IRS website for current gift tax exemptions, you can also reduce federal estate taxes. A properly set-up gift giving program can therefore save on both probate costs and taxes.
This is a form of ownership which transfers the decedents interest in the property to the remaining living owners. This is typically used among spouses and family members. There are drawbacks to adding another owner to the title. First there are possible tax consequences for giving appreciated property to a joint tenant shortly before death. Also the new co-owner may sell or borrow against his share.
Revocable living trusts are used for many reasons, some of the advantages are asset protection, tax planning, and probate avoidance. Once you create a trust you can hold property in the trust without giving up control, and when you die, the trust document will determine your distribution, without having to go to probate court.
When you purcahse a life insurance policy, the proceeds will go to your designated beneficiaries without going to probate court. Note: If you designate your estate as the beneficiary it will be subject to probate.
A pay-on-death designation is a simple way to transfer certain property at your death. All that is required is to name someone to inherit your property at death. This is typically used for government bonds, IRAs, bank accounts, and depending on the state: stocks, bonds or your car. Upon death title to the property can be transferred to to the person free of probate.
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